U.S. home sales strong but constrained by insufficient supply

U.S. home sales strong but constrained by insufficient supply

*New home sales jumped 20.7% in March, more than offsetting their 16.2% weather-related decline in February, to a 1.02 million annualized pace. The pace of sales is over 40% higher than Q4 2019 before the pandemic, but well below the pace of sales during the debt-financed housing bubble of 2002-2005 (Chart 1). Earlier this week the National Association of Realtors reported that existing home sales dipped 3.3% in March to a 6.01 million annualized pace, 11% above their pre-pandemic levels (Chart 2).

*While the demand for new home purchases is very strong, sales are constrained by low inventories. The supply of one-family homes at the current pace of sales is 3.6 months, below the average during the debt-financed housing bubble (Chart 3).

*Residential construction is increasing rapidly but cannot keep pace with strong demand. Not surprisingly, costs of construction are rising rapidly— 7% yr/yr—and home prices are rising even more rapidly—11% yr/yr, as contractors are readily passing on the higher costs of construction to home purchasers (Chart 4). The average new home price is $346,000.

Virtually all of the cyclical and demographic factors underlying demand for homes are positive. Additional boosts are provided by the stay-at-home trend and rapid increases in prices, which lift expectations of further home price increases. Construction activity is expected to remain strong and overall housing activity is projected to rise significantly in 2021-2022.

The strength in home sales is adding significantly to consumption of household durable goods. This trend is expected to continue.

Chart 1. New home sales

Chart 2. Existing home sales

Chart 3. Inventories: months’ supply at current sales rate

Chart 4. Price index of new one-family homes under construction

Mickey Levy, mickey.levy@berenberg-us.com

Member FINRA & SIPC
This email and any files or attachments transmitted with it may contain confidential or privileged information and are intended solely for the use of the intended recipient. If you are not the intended recipient, please do not copy, retain, disclose or use any part of the message or its attachments. Please notify the sender immediately by return email and destroy or delete any copies. Dissemination or use of this information by anyone other than the intended recipient is unauthorized and may be illegal. Communications by email cannot be guaranteed to be secure or error-free. Emails and their attachments are subject to being intercepted, becoming corrupted, getting lost or delayed, or may contain viruses. Therefore, neither the sender nor Berenberg Capital Markets LLC (BCM) accepts any liability for any errors or omissions in the content of this message or problems in its transmission, including those arising as a result of its transmission over the internet.
BCM does not assume liability for the correctness and completeness of all information given and/or attachments contained herein. The provided information has not been checked by a third party, especially an independent auditing firm. BCM explicitly points to the stated date of preparation. The information given can become incorrect due to passage of time and/or as a result of legal, political, economic or other changes. BCM does not assume responsibility to indicate such changes and/or to publish an updated document. Any document(s) or attachment(s) is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.
In light of upcoming regulatory changes, please be informed that BCM will continue to share information with you until unsubscribe@berenberg-us.com receives your termination/deletion request. For more information about the General Data Protection Regulation (GDPR) and our privacy policies please refer to https://www.berenberg-us.com/legal-notice. BCM reserves all the rights in this communication. No part of this communication or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without BCM’s prior written consent.
The information contained herein and sourced may have been adopted from various news sources, for example, Bloomberg, Reuters, Street Account and various other sources. BCM does not claim accuracy, completeness, timeliness, suitability, or otherwise regarding all the information on the securities, stock markets, or developments referred to within. On no account should the Content be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgments. BCM is not responsible for any recipient(s) use of this information. This Content is not a solicitation or an offer to buy or sell any of the securities contained herein. This information does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of clients. Clients should consider whether any advice or recommendation in this Content is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of securities which may be referred to in this Content and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain securities.